As Sora, Donald, and Goofy approach the world of Atlantica, they realize that it is entirely submerged underwater. Donald explains that he can use his magic to transform them, giving them forms that would allow them to breathe underwater. When they arrive, Donald takes the form of an octopus, Goofy becomes a sea turtle, and Sora is a merman. Shortly after arriving, they are met by the mermaid princess Ariel, who is not one of the seven Princesses of Heart, her fish friend Flounder, and the royal advisor crab Sebastian. The three of them immediately realize that the newcomers are not from Atlantica, and it is clear that they aren't used to swimming, so Ariel has Flounder teach them. Their swimming lessons are interrupted by the arrival of Heartless that they have to deal with. After the fight, they decide it would be best for them to return to the palace of King Triton, ruler of Atlantica and Ariel's father.
The group makes it back to the palace with Heartless in hot pursuit. They are obliterated by Triton's magical trident before they can do any more harm. Triton is immediately suspicious of Sora, Donald, and Goofy upon seeing them. When Goofy tells the king that they are looking for the Keyhole, Triton snaps at them and insists that there is no such thing in that world. He sends them away and forbids Ariel from leaving the palace. After they leave, Sebastian confirms that the Heartless are coming from the cave of Ursula, the sea witch who once lived in the palace and now is part of Maleficent's group.
Disobeying her father's orders, Ariel leads her new friends to a secret grotto where she collects things that fall from the outside world. The princess expresses her desire to see other worlds. Sora realizes he wasn't very different from her, as that same desire is what led to his adventure in the first place. Ariel offers to help Sora find the Keyhole, so they leave to search. Little do they know they were being watched by Ursula and her eel minions, Flotsam and Jetsam, along with Sebastian.
The group makes their way to a sunken pirate ship, where they find a crystal trident. They realize that there was a plaque with a similar design back at Ariel's grotto, so they decide to return there. As they leave, they are attacked by the shark named Glut. They defeat him and return to the grotto.
Back at the grotto, they insert the crystal trident into the plaque, but they are interrupted by Triton, who had been informed of Ariel's disobedience by Sebastian. In a fit of rage, he destroys the crystal trident, causing Ariel to leave. Triton then reveals that he knew Sora was from another world, and he tells him that he is meddling by searching for the Keyhole. Believing that the wielder of the Keyblade will only bring ruin, Triton orders Sora and his friends to leave.
Meanwhile, the sobbing Ariel is greeted by Flotsam and Jetsam, who claim that Ursula could help her. They summon the sea witch, who tells Ariel that Sora, Donald, and Goofy are from another world. Ursula makes a deal with her: if she takes her to the palace, where Ursula assumes the Keyhole is, she will help Ariel travel to other worlds. After sneaking into the palace, Ursula finds Triton's trident and takes it for herself, leaving Triton weak. The sea witch plans to uphold her end of the deal of helping Ariel reach another world...by sending Ariel to the Realm of Darkness. She is interrupted when Flotsam and Jetsam inform her that the Keyhole isn't in the palace after all. Sora, Donald, and Goofy show up, forcing Ursula to retreat.
At the behest of Triton, Sora, Donald, and Goofy team up with Ariel to find Ursula's cave. When they arrive, Ursula attacks by throwing spells from her cauldron while Flotsam and Jetsam try to hit them. They manage to destroy the eels, causing an enraged Ursula to retreat. They head out to open waters, where Ursula proclaims herself the new ruler of the sea. She uses the trident to grow to gigantic proportions and rain lightning down upon them. Despite the power of the trident, Sora and friends are victorious, and Ursula is destroyed.
The group returns to the palace with the trident in tow, where Triton thanks Sora by revealing the location of the Keyhole. As it turns out, the trident plaque in Ariel's grotto was in fact the means to reveal it, which is why he destroyed the crystal trident. Triton explains that his trident also has the ability to reveal the Keyhole. They return to the grotto and insert the trident, revealing the Keyhole, which Sora promptly locks. Ariel thanks Sora for helping her, saying that he has given her the hope that maybe she can leave the sea one day. With that, Sora, Donald, and Goofy depart from Atlantica to continue their journey...
